Smart Cities to make India attractive for FDI – IHS

12 Aug '14

4 min read

An announcement, by the Indian government to create 100 Smart Cities has the potential to create a new competitive landscape for the subcontinent that will be much more attractive for foreign direct investments by global multinationals, says a latest analysis from US-based and NYSE-listed IHS, a global provider of information, insight and analytics in critical areas.

In response to India’s population projected to increase by 200 million people over the next 15 years, in turn placing tremendous pressure on the country’s urban infrastructure, the Indian government headed by Narendra Modi, had announced a programme in July to build 100 Smart Cities.

This has a potential to transform India’s global competitiveness within 10 years and boost the country’s long-term potential economic growth rate, the analysis from IHS reveals.

IHS Asia-Pacific Chief Economist Rajiv Biswas noted that the total investment associated with the development of 100 smart cities in India could be far in excess of US$1 trillion with a significant share of this investment likely to be from foreign government and private sector inflows in an Asia research paper titled - Can Modi’s ‘Smart Cities Strategy’ Drive India’s Economic Rebound?.

Biswas says, “The development of India smart cities with modern, highly efficient infrastructure for electricity, transport and IT, will create a new competitive landscape for the subcontinent that will be much more attractive for foreign direct investments by global multinationals.

“The potential economic impact effects from the development of India’s smart cities development will act as a significant catalyst for economic growth through a number of drivers, including increased FDI inflows, accelerated REITs (Real Estate Investment Trusts) development, increased competitiveness, and job creation.”

Biswas adds, “Modi’s track record of infrastructure development while he served as Chief Minister of Gujarat demonstrates his commitment to implementing such infrastructure projects and attracting foreign investment inflows”.

“For example, one Smart City planned during that time that is already under construction is Gujarat International Finance Tec-City (GIFT) which is designed to be an international financial services and technology hub”, Biswas notes.

The estimated total investment for the Delhi Mumbai Industrial Corridor (DIMC) project is US $90 billion and the GIFT smart city $10 billion, together amount to $100 billion, so the total investment associated with the development of 100 Smart Cities in India could be far in excess of US$1 trillion, the paper observes.

A significant share of this investment is likely to be from foreign government and private sector investment inflows.

“If his BJP-led government can successfully roll out the smart cites programme across India, it could significantly improve India’s potential growth rate, boost the country’s international competitiveness, and generate millions of new jobs over the next decade,” Biswas says.

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